3 Steps to Stay Afloat in Tough Times

You can get more from your savings — despite interest rates at record lows

If your bank is paying you zilch, consider a credit union. Because of credit unions’ nonprofit structure, they typically offer better interest rates on their accounts. Do some research comparing credit unions online at DepositAccounts.com.

“With some elbow grease you can earn a percentage point or two on your cash,” says Greg McBride, senior financial analyst at Bankrate.com.

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Once you find a credit union, Ken Tumin of DepositAccounts.com suggests a two-pronged strategy: Use the credit union for your basic checking needs, then shop online for the best returns on your savings. That might be a bank or a credit union.

And if you have a 401(k), see if a stable-value fund is part of the mix. These funds are a breed of lower-risk investment, akin to money market mutual funds, but with higher yields, and available only through retirement accounts such as 401(k)s.

Step 2. In Bonds, Go for Short Term and High Quality

Yields on shorter-term Treasury bonds and high-quality corporate bonds are about as low as Congress’s approval rating. So it’s tempting to move some of your money into higher-yielding pockets of the bond world, be they longer-term or lower-quality corporate bonds.

“But there is always a trade-off,” notes Laura Thurow, codirector of private-wealth-management research at Robert W. Baird & Co. “It’s so important to understand what risk you are taking on when you invest in something with a higher yield.”

And this is no place to take outsize chances. “Keep reminding yourself what the purpose of your bond portfolio is,” says Christine Benz, director of personal finance at Morningstar. “It’s not the return engine of your portfolio. It’s for stability.”

That’s an argument for keeping the majority of your bonds in high-quality issues with a duration of five years or less. Remember: Bond prices decline when interest rates rise, and this price volatility increases in bonds with a longer time to maturity.

If you want higher yields, limit your appetite for investments such as junk bonds — the debt of corporations whose balance sheets are deemed to be of lower quality — to no more than 10 to 20 percent of your overall bond portfolio. You may earn 7 percent, but you’re taking the risk that the company paying the interest may default on its payments.

Just don’t overindulge: Think of this kind of investment as dessert, not the main course.

Step 3. Use Dividend-Paying Stocks to Whip Inflation

Consider this: If inflation averages just a moderate 3.5 percent over the next 15 years, it will take more than $1.60 to pay for the same things that $1 buys today. To pay your future bills, think about having a stock portfolio that can keep pace with inflation.

Bud Hebeler of the Analyze Now website follows a simple age-based formula for calculating how much: 100 minus your age for the minimum percentage of stocks, with a maximum of 10 percent over that. At age 78, he’s currently on the low end of that range, with about 23 percent of his money in stocks.